Operating on the Edge

Nearly a year ago I was looking for a job and collecting unemployment as an unfortunate consequence of having nine months earlier joined forces with a for-profit consulting group. At the time of my layoff, I concluded that the managing partner simply lacked cash-flow experience and needed to take a few of those accounting courses that I had struggled through in college. Ironically, this consulting shop esteemed itself for assisting non-profits in getting their financials in order. So armed with a fresh resume and determined I would not regret another for-profit misadventure, I returned to the more familiar non-profit territory. 

As I relied on the generosity of the State of Maryland and began telling myself that I would never again fall victim to another poor financial manager it did not occur to me that non-profits share the same cash-flow dysfunctions. As a seasoned non-profiteer, you would think I would have seen the similarities sooner. Highly dependent upon charitable gifts, lacking diversified revenue streams, and short on accounting courses, nonprofit organizations are notorious for operating way too close to edge and unlike their for-profit counterparts, are rarely criticized or questioned for doing so.

The similarities occurred to as I read Susan Raymond’s The Future of Philanthropy wherein she compares the similarities of nonprofits to small businesses. Raymond references a study of NYC charities wherein she discovered that that in 2000 29% percent of the city’s charities operated with a deficit. According to the study, if NYC charities experienced an additional 15% decrease in revenues, the number of NYC charities operating with a deficit would increase to 71%. I share Raymond’s sentiment that nearly three-fourths of NYC charities are “living on a financial knife’s edge.”

Undoubtedly, my former employer operated way too close to the edge. And as my family and friends will attest, I have done my share of criticizing the poor fellow for operating with such narrow margins. However, I have long admired the “faith-based” posture of so many non-profits that similarly maintain very narrow margins. This raises the question of why tax-status all sudden seems to change my interpretation of sound management, my interpretation of best practices, and most importantly, my interpretation of operating on faith.

I shared my new realization to my wife who quickly pointed out several major differences between the exceptional non-profit shops I had previously served and the particular not-so-exceptional for-profit I consulted with. She reminded me that operating on the financial edge was certainly the lesser of this guy’s  many problems. Nonetheless, she also saw the inconsistencies in how we measure-up between the two sectors. We sort of create double-standards between the sectors; expecting more from those on one side and tolerating less on the other; even in areas that are clearly apples to apples. Whether it’s financial management, operating procedures, or performance expectations, many of the same rules apply and shouldn’t change simply because of tax-status.

Jason Lewis MS CFRE